Strategic Business Development is crucial to the long-term prospects of most venture-backed companies. The alliances you form, the agreements you sign and the path you take all work to attract - or repel - your eventual acquirer - and the price!
This blog aims to discuss lessons learned during >25 years in business development for the software industry.

Sunday, October 18, 2009

My friend and colleague, John Soper, and I spent some time last year thinking about collaboration amongst competitors: Coopetition. Having worked at Novell during their heyday as an alliance magnet, I practiced strategies every day but hadn't tried to explain what we did; what we discovered.

Every alliance is potentially Coopetitative. Successful BD executives need to be skilled in recognizing and managing in that context, or risk being outmaneuvered.

We defined two types of Coopetition:

First Order, where an alliance is formed between two competitors (A and B). That competitive overlap ranges from small to very large. Such alliances are usually driven by customer demand or competitive threat: the enemy of my enemy is my friend. Industry standards often play a role in these alliances.

Examples about in the market today? On the large scale, Oracle and IBM work together to optimize Oracle databases and applications on IBM hardware, and Oracle applications running with IBM infrastructure software. Clearly, major market forces are at play here. These two companies compete fiercely across Database and Infrastructure software and services, and are about to compete in hardware as well! Coopetition is typical for small companies forming alliances with major players, but examples between small companies are less prevalent, probably because most have simpler product portfolios, so the competitive overlap is large.

The Second Order of Coopetition involves at least three parties (A, B, and C). A forms alliances with B and C, where B and C are significant competitors.

Look at any major vendor (BMC, IBM, Oracle, McAfee, Microsoft) partner program to see examples. The IBM hardware team has close alliances with both SAP and Oracle.

We deemed the imagined 3rd - Nth order cases to be mostly noise unless they reach Second Order status.

So, why do you care? A company trying to approach an alliance partner with First or Second Order Coopetitiion must consider the impact of the overlap on potential marketing and business outcomes, adjust the proposed joint value proposition, and handle the potential competition on both sides. To do otherwise risks a strategic misstep.

If there are complex interrelationships, it can be helpful to plot competing and collaborative products on a “core-context” dimension – the degree of Coopetition then becomes apparent.

In these days of industry consolidation, even if your partner is not a Competitor yet, they may become so soon. So, it is always worth spending time understanding the competitive posture of your potential partners and adjusting strategies and the joint value proposition accordingly.

A value proposition that grows the pie and achieves business goals for both parties will usually trump a critical or peripheral competitive threat!

Thursday, October 1, 2009

In my opinion, the Lax-Sebenius book 3D Negotiation offers the most innovative perspective on negotiation strategy and tactics. One of the important concepts maps to 3D Business Development (3DBD): moving "Northeast" in negotiating share of value formed by an alliance. I call it creating a joint value proposition.Chapter eight highlights the importance of realizing that negotiations are not just about claiming value already on the table, but about unlocking value created by the alliance itself and sharing that between the parties as well. I have spent a good part of my career developing joint value propositions around each alliance. It is surely easy to see that negotiating a royalty between 0 and 100% of your own product revenue is a much tougher task than negotiating a share of the total value formed by the alliance, including what you bring, what your partner brings and the value you create by working together. Whether that is a channel, a new approach to a problem, a market opportunity, reduced waste, a new product or global reach, the result is the same - the combined value makes everyone far better off than they would have been if they'd focused solely on claiming the value already present. So, dividing up that value becomes easier as well.So, how does that work in our world of Business Development? Some examples might help trigger the imagination:

The combination of your product with that of your partner forms a strategic edge over all competitors - a whole product - that increases the forecast for both products substantially.

A licensing alliance that drives volume for your hardware product, resulting in a reduction in per-unit COGS for all sales, increasing margins for your entire business unit.

As part of a deal, your partner's service personnel call on customers and can provide on site services for you while they are on site, reducing overhead and increasing value with almost no increase in cost.

Of course, each is specific to the negotiation at hand. But, it is easy to see how negotiating shares of a pie that is, say, 50% larger than the basic value on the table is much easier to do.

So, next time you negotiate a product or service licensing alliance, take time to consider both the value you bring to the table and the value created by the alliance and the work you'll be doing together, and make sure you highlight both to your partner.

Life will be much easier, and everyone will be happier if you can use your skills as a Business Development executive to help create value for both companies. A true win-win.